Interest rates held at record low for 36th month

 

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The Independent Online

Interest rates were held at a record low of 0.5% for the 36th month in a row today amid evidence that the benefits to borrowers are slipping away.

The Bank of England's Monetary Policy Committee (MPC) maintained the base rate as some experts predicted it could be held at the same rock-bottom level for another three years - causing great pain for savers.

But lenders have recently started to put up their mortgage costs, including Halifax and RBS-NatWest, amid the weak economy and the fallout from the eurozone crisis.

The Bank also held its quantitative easing (QE) programme - otherwise known as money-printing - at £325 billion after last month's £50 billion cash injection.

Economists have said it would take a seismic change in the economic and inflationary landscape to bring higher interest rates back to the table.

The combination of low rates and high levels of QE have been particularly painful for savers and those approaching retirement, although most homeowners have benefited, given the bank's base rate stood at 5% in October 2008.

The typical savings rate has plummeted from 6.52% in 2008 to 2.78%, since the bank starting cutting borrowing costs.

It is thought that more than £100 billion is sitting in accounts which pay no interest, according to Bank figures, compared with around £15 billion-£20 billion in the years before the financial crisis.

Meanwhile, around £90 billion has been knocked off the value of final salary pension schemes due to recent QE measures, according to the National Association of Pension Funds (NAPF).

For those who reached retirement age in that period, annuity rates fell from 6.93% to 5.86%. This is because annuities are linked to yields on Government bonds which have been reduced by QE.

The Bank's Governor, Sir Mervyn King, has repeatedly expressed his sympathy for savers but has said the stimulus measures were needed to help the economy.

Mortgage payments for new borrowers have reached their most affordable levels for 14 years but there are signs that this trend is on the turn.

Halifax on Sunday become the second major lender in as many days to reveal hikes in its own mortgage costs, confirming it is raising its standard variable rate (SVR).

Some 850,000 borrowers will see their mortgage costs increase as the rate rises from 3.5% to 3.99% from May 1.

The move came after RBS-NatWest confirmed on Saturday that it is pushing up rates on two of its products - the Offset and The One Account - by 0.25%, taking them to a rate of 4%, affecting around 200,000 customers.

PA

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